Peter Drucker quoted it best, “What gets measured gets done.” Measurement can help with management procedures. It encourages focus on strategic and operational improvement efforts. Assessment by measuring helps determine if the means of doing tasks is effective, thus managing resources.
Top Key Performance Indicators (KPIs) measure the success of an individual, team, or organization in achieving targets and/or objectives. They are critical quantifiable progress indicators of an intended outcome. KPIs create an analytical basis for decision-making and shift attention to what matters most.
Managing goals with key performance indicators involves setting targets and tracking their progress, with targets as the desired level of performance. It means working to improve performance using indicators as guides and leads. These leading indicators are set to drive an individual, team, or organization to their desired results implied by lagging measures. They capture what is currently occurring and project a possible future outcome. They reflect a proactive mindset.
Characteristics of a Good Key Performance Indicator (KPI)
Data is vital in the ever-competitive business world. It is the key to implementing a business strategy, increasing operational efficiency, growing sales and profits, and retaining employees. However, many businesses fail to carry out the suitable KPI for them and manage it with performance dashboards.
A good key performance indicator:
- Can track compliance, effectiveness, efficiency, personnel performance or resource utilization, project performance, quality, and timeliness
- Measures what is intended to be measured to contribute to informed decision making
- Offers a comparison that measures the degree of change in performance over time
- Provides progress evidence of reaching objectives
- Makes room for incentives and rewards.
Key performance indicators serve to gauge and improve performance, ensure stable operations, and provide incentives to individuals or teams. Using the good and right KPIs is key.
KPIs allow understanding of individual and/or team performance and productivity. Assess the current ending year’s KPI results. Key performance indicators should be aligned with the strategies and objectives. Find opportunities, identify gaps to improve, and progress toward your objectives.
Key performance indicators tell if everything is running smoothly. They ensure systems, processes, and teams are operating at a stable rate, so KPIs should be actionable. Once you’ve set them, the next thing to do is to outline the steps. Lay down what needs to be done to reach the targets and the metrics that need to be measured. Key performance indicators should inspire action. Actionable steps will set an individual, team, or organization up for success in accomplishing the KPIs.
Good key performance indicators provide clear information and objectives. They are easy to read, realistic, and straightforward. KPIs offer an effective way to measure and track performance using different metrics. By setting good key performance indicators and implementing them properly, long-term success is guaranteed.
Advantages of Key Performance Indicators
Individuals, teams, and organizations wish to learn about KPIs for several reasons. Key performance indicators’ data-driven approach provides quantifiable information that is useful for strategic planning and ensuring operational excellence.
Key performance indicators are statistically supported. They help hold its users accountable. When used appropriately, key performance indicators can help encourage its users because of the monitoring. Performance KPIs will help their individual contributors measure their impact and the role their tasks play in achieving success.
KPIs also serve as the bridge that connects the tasks of an individual, team, or organization and their objectives. Key performance indicators allow them to set objectives and then monitor their progress. They set everyone off in the same direction.
More advantages of key performance indicators are:
- Informing managers in countless ways of how an individual, team, or their organization as a whole is performing
- Motivating KPI users who feel positively challenged to meet targets
- Helping hold KPI users accountable for their actions or lack thereof
To fully reap these advantages, define your key performance indicators first with these guide questions:
- What is your desired outcome?
- Why does that outcome matter?
- How are you going to measure progress?
- How can you influence the outcome?
- How will you know that you’ve achieved your target?
- How often will you review the progress towards the outcome?
Types of Key Performance Indicators
KPIs measure the success of an individual, team, or organization versus a set of targets, objectives, or industry peers. They can be grouped as:
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Financial Metrics
Financial metrics typically focus on profit and revenue margins. They analyze different numbers that are helpful in dealing with problems and other management aspects. Examples of financial metrics include:
- Liquidity ratios
- Profitability ratios
- Solvency ratios
- Turnover ratios
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Customer Metrics
Customer metrics center on per-customer efficiency, customer retention, and customer satisfaction. These metrics help better understand the service that customers have been receiving. Customer metrics include:
- Number of new ticket requests
- Number of resolved tickets
- Average resolution time
- Average response time
- Type of request
- Customer satisfaction rating
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Process Performance Metrics
Process performance metrics analyze how tasks are performed and whether or not there are issues surrounding them. The issues may pertain to performance, process, or quality. The following may fall under process performance metrics:
- Production efficiency
- Total cycle time
- Throughput
- Error rate
- Quality rate
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Marketing KPIs
Marketing KPIs aim to get a better understanding of how effective marketing efforts have been. These metrics usually measure the conversion rates of a marketing medium, of how often prospective clients respond to them. Samples are:
- Website traffic
- Social media traffic
- Conversion rate of call-to-action content
- Blogs published per month
- Clickthrough rates
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IT KPIs
Tracking how the internal or information technology department is doing assures operational excellence. IT KPIs can be in the form of:
- Total system downtime
- Number of tickets or resolutions
- Number of developed features
- Count of critical bugs
- Back-up frequency
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Sales KPIs
A business’ ultimate goal is to generate revenue through sales. Sales KPIs leverage non-financial data to better understand the sales process. Examples of sales KPIs are:
- Average conversion time
- Number of engaged leads
- Average value for new contracts
- Customer acquisition cost
- Customer lifetime value
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Staffing KPIs
Staffing KPIs range from turnover to retention to satisfaction. Examples of staffing KPIs include:
- Absenteeism rate
- Overtime hours
- Employee satisfaction
- Employee turnover rate
- Number of applicants
How to Develop the Right Key Performance Indicators
Well-designed key performance indicators and dashboards empower employee efficiency and retention, strategic planning, and overall business success. When an individual, team, or organization understands how various KPI metrics work, managing is easier.
Developing KPIs requires learning how different measures contribute to the picture of how an individual, team, or organization is doing. Design and use KPIs by:
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Reviewing your current metrics
The first step is to measure your business using your current key performance indicators. Establishing KPIs that’ll work starts with figuring out what you need to know to proactively make the right decisions.
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Understanding your goals
Review your objectives. They are key to choosing the right KPIs. Objectives set the trajectory of your plans. Once objectives are understood, all areas can now be accounted for. How will each department influence the objectives?
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Setting appropriate KPIs
Key performance indicators should be targeted, practical, and sufficient. Set the KPIs at various levels that’ll drive the manpower toward the end goal. The KPIs should be related to the activities that they can influence or contribute to the objectives.
Automate the collection of data. Have enough indicators for each business level, just enough. Do not try to develop too many indicators that’ll just overwhelm you or your team. Do not also settle for a single KPI for your business. Stick to realistic, doable short and long-term goals.
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Present your established KPIs
It’s important to lay down your newfound right KPIs for next year to your team. Regularly discuss them with your team. KPI dashboards will help all of you see and get on the same page.
A good dashboard is always updated, clear and simple, reviewed regularly, and inspires and guides discussions. Your team should be able to see the KPIs at a glance and easily understand the data.
One of the challenges of setting key performance indicators is deciding how many to track to determine success. Having too many KPIs may critically shift the attention to the less important ones. Limiting the scope to small sets of indicators may be more effective.
The Different Types of Measures
The purpose of measuring performance is to ultimately drive improvements. KPIs help an individual, team, or organization achieve them. They can be categorized into:
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Inputs:
They measure the attributes of the resources consumed in the process. The amount, type, and quality can constitute inputs. One good example is a budget.
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Process:
It’s the activity that focuses on the consistency and efficiency of the tasks done to produce desired outcomes. The process also measures the quality of equipment or tools used and the process training. It may involve inputs and outputs, timeline, and cost per unit.
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Outputs:
They are the results that indicate how much work is done and present what is produced. Outputs are the products.
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Project:
This is the measure that answers questions about the status of the deliverables. Under the umbrella of a project are scope, schedule, resources, and risks.
The measures presented above fall into different categories. Each category has its own characteristics, timeframe, and users.
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Strategic measures
track the progress of the goals. They indicate how an individual, team, or organization is doing. These measures focus on the desired results.
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Operational measures
focus on the processes, production, and use of resources. They have a tighter timeframe. These measures are designed to make better informed decisions for daily product or service delivery.
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Risk measures
heed factors that can threaten success. They prevent leaving an individual, team, or organization at risk, and being unable to respond to challenges. Risk measures identify critical problems that can create serious operational issues that’ll disrupt the entire business.
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Employee measures
are the human behavior, performance, or skills that are needed to execute strategies.
Wrong key performance indicators can hurt a business. KPIs have the power to either help or damage a business. A poorly thought-out KPI leads to a drastic loss. On the other hand, changing KPIs to focus on quality control and timely delivery lead to major benefits. Right data goes a long way in reaping those benefits. It’s the same thing with building transparency, team alignment and engagement, and understanding and pursuing opportunities.
Measuring Key Performance Indicators
Key performance indicators are data that have been collected, analyzed, and summarized to help with decision-making. An individual, team, or organization can use the data in making more informed decisions for tasks and strategies.
KPIs help an individual, team, or organization measure and evaluate the effectiveness of functions, processes, and solutions. They take into account objectives and measure performance according to specific targets from strategic planning. Key performance indicators spot potential problems and opportunities and set targets that will deliver strategic goals. Measuring key performance indicators can help determine if an individual, team, or organization is likely to achieve their goals.
For KPIs to work well as management tools, being able to measure them accurately is essential. After defining and developing key performance indicators, managers will have to determine the best method to measure performance using it. They may find it helpful to break down the assessment into more manageable components and then measure each separately. Monitoring KPIs regularly is a must for them to be effective.
Improving Key Performance Indicators
The new year ahead calls for streamlined key performance indicators for businesses. The benefits of such updates can be very significant for businesses, especially when they adopt the appropriate KPIs. Better employee engagement and customer satisfaction, improved cash flow, productivity, and profitability, and reduced defect rates are just some of these benefits.
Without KPIs, performance evaluation and addressing problems concerning them will be difficult. Keeping the focus of the manpower who’ll bring organizational success will be challenging without designated KPIs. Key performance indicators reinforce the importance and value of the business initiatives and tasks that they’re in charge of.
Make sure that you’re improving your key performance indicators from this year for the next year. Follow these key steps in the KPI process:
- Identify a set of relevant KPIs to track an individual, team, or organization.
- Create dashboards or scorecards to measure and display key performance indicator results.
- Evaluate how well objectives are met based on the key performance indicators.
- Change processes and strategies as needed.
- Assess whether the key performance indicators still align with objectives. Adjust them if needed.
Key performance indicators not only highlight success and issues based on the measurements of the current and past performance. They also weigh future outcomes. KPIs can give early warning signs on potential issues or advanced guidance on opportunities to maximize return on investment. Equipped with such information, leaders can more proactively manage their operations.
Managers must continually evaluate KPIs to ensure they’re still aligned and relevant with operational priorities. If a key performance indicator no longer serves a useful purpose, it needs to be either refined or replaced.
Developing Key Performance Indicator Reports
With individuals, teams, and organizations collecting data every day, sorting KPI information might become overwhelming. When pulling together KPI reports or dashboards, consider these steps:
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Discuss objectives.
Before pulling together any KPI reports, understand what you, your team, or your organization are attempting to achieve. Key performance indicators will only be as useful as its users make them to be.
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Draft SMART KPI requirements.
Key performance indicators should have restrictions. They have to be Specific, Measurable, Attainable, Realistic, and Time-bound (SMART). Vague or unrealistic KPIs will just be in vain. Focus on the available information and meet the SMART requirements.
One way to measure performance is through the SMART framework. You can expand this framework to SMARTER. ‘E’ stands for evaluate, and ‘R’ stands for re-evaluate. Constant evaluation of your KPIs will ensure that they are attainable and on track.
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Be adaptable
Brace yourselves for new problems that can arise while pulling KPI reports together. Be prepared to add more attention to an area(s). Key performance indicators should be able to adapt to operational changes.
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Avoid overwhelming KPIs.
Too many KPIs are difficult to comprehend. It’ll disrupt and even overlap with the more important metrics that should be focused on.
Setting the Right Metrics for Your Business
Key performance indicators encompass a wide variety of customer service, financial, manufacturing, marketing, sales, and supply chain metrics. They differ from individual to individual, team to team, and organization to organization based on their priorities. KPIs bring to light how well an individual, team, or business as a whole is doing. They provide a broader view of an individual, team, or organizational performance beyond common financial measurements.
The KPIs you set should be tailored to you, your team, or your organization and your targets. To measure performance successfully, an individual, team, or organization must identify and focus on the right areas of management. These can be done by:
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Assessing your core activities
Identifying specific areas that need management starts by looking at the key drivers of success. Evaluate what you actually do. Look at your core activities. Determine what makes them successful and how to improve them. You may ask these questions to assess:
- Are your current KPIs performing as planned?
- What’s currently successful?
- Where are problems prevalent?
- Are regular reviews needed?
Use these guides in improving or deciding to discontinue non-performing functions and/or processes. Review the current system. Examine areas that require comprehensive improvements. Once you identify the most productive and challenging areas, you’ll be able to find the correct measures to assess them.
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Finding the specific performance measures
Focus on the areas that make you successful. The goal of key performance indicators is to communicate clear results to empower managers to make more informed strategic decisions.
Key performance indicators are a form of communication. KPIs can help solve communication problems between managers and individual contributors. Start with the basics. Understand your objectives. Determine how you’ll achieve them. Identify the people who can act on it. As you do these, you’ll comprehend which should be on your KPI dashboard and who you can share it with.
Key Performance Indicators Connecting Purpose and Culture
Measuring what’s important also means managing what’s important. It’s critical that your KPIs represent what really matters to their individual contributors and are tied to your purpose. Key performance indicators should be connected to your purpose. A purpose is more than just gaining profits and revenues through sales for businesses. It’s what should encourage individual KPI contributors to show up to work with a renewed sense of excitement every day. This purpose should be directly linked to your KPIs so they’d feel like their work is purposeful when accomplishing both.
Ensure your key performance indicators work towards your objectives. Make sure that the individual KPI contributors also clearly understand the hows and whys they’re working towards. Employee engagement is one of the most effective measures of a strong organizational culture. Secure a connection between your purpose and culture and everything you set as KPIs will count.
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